Federal court orders losing party to pay the costs of computer-assisted review

Responding to e-discovery demands remains an important but budget-busting stage of litigation. Recently, several courts have issued decisions supporting the use of computer-assisted review to reduce e-discovery expense, sometimes ordering the losing party to foot part or all of the bill.

Gabriel Technologies Corp. and Trace Technologies, LLC v. Qualcomm, Inc., SnapTrack, Inc. and Norman Krasner is one such case, decided in February in the Federal District Court for the Southern District of California.

The court awarded the defendants $12 million in attorney fees, including more than $3 million in e-discovery costs, of which $2.8 million was for computer-assisted review. The decision adds to the growing split in the federal courts over what discovery costs are recoverable.

Prior to 2008, the U.S. Code allowed a winner in a lawsuit to recover “fees for exemplification and the costs of making copies of papers.” Recognizing the explosion of digital data, Congress in 2008 amended the language in the code from “papers” to “any materials,” thereby explicitly permitting courts to award costs incurred in producing electronically stored information (ESI) during discovery but failing to specify which costs were covered.

The court in Gabriel Technologies found that the defendants’ request for recovery of $2.8 million paid to a vendor for electronic document review was justified because their outside law firm “seemingly reduced the overall fees and attorney hours required by performing electronic document review at the outset.”

But other courts have taken a different view. Decisions on requests for e-discovery reimbursement range from zero to total reimbursement.

“It would be very helpful if Congress or the Supreme Court would step in and clarify what e-discovery vendor costs are recoverable. There’s really no good reason for the answer to the question to depend on what circuit you happen to be litigating in,” says Jay Yelton, chair of the e-discovery and records management section at Miller Canfield.

Frivolous Claims

The roots of Gabriel Technologies trace back to the late 1990s, when technology companies Locate Networks, which Gabriel and Trace bought later, and SnapTrack, which Qualcomm later acquired, entered into an agreement to develop technology together. In 2008, the plaintiffs sued for more than $1 billion in damages, alleging trade secret misappropriation and other claims based on SnapTrack’s alleged filing of patents using the technology the parties jointly developed. The court dismissed some of the plaintiffs’ claims and granted summary judgment in favor of the defendants on the remaining claims.

Qualcomm argued that the case warranted attorney fees and costs, which the federal code permits when a patent case is “exceptional,” that is, when frivolous claims are filed or a party is guilty of litigation misconduct, for example.

Judge Anthony Battaglia agreed, holding that “the plaintiffs unreasonably pursued trade secret claims after having been notified of their evidentiary deficiencies by two magistrate judges and one district court judge.”

In considering the costs incurred for computer-assisted review, the court looked at the process the defendants used to review nearly 12 million records.

The defendants employed a firm that selected many examples of documents it determined to be possibly relevant to the claims, and then had the computer software “learn” from the manual selections what could be relevant to sort the remaining records. Afterwards, contract attorneys reviewed the documents the computer deemed relevant to confirm the software’s accuracy, withholding those deemed confidential and privileged and not disclosable.

The court held that it was reasonable for the defendants to use computer-assisted review with predictive coding technology as well as contract attorneys to reduce attorney fees and thereby minimize e-discovery costs.

“This case highlights the reasonableness of litigants incurring costs to use computer-assisted review or predictive coding technology as a means of minimizing the overall costs incurred in responding to discovery,” says Stephanie “Tess” Blair, leader of the e-data practice at Morgan Lewis.

E-discovery Protocol

The potential for a court award of e-discovery costs means counsel should take steps to guard against costly judgments if they lose the case, and prepare for claiming the costs if they win.

Although apportionment of costs among the parties already is common practice, having parties also face a risk of costs being awarded against them should they lose the case may encourage more focused e-discovery demands and agreements between parties regarding the scope of e-discovery.

“Counsel absolutely must understand the parameters of the e-discovery issues no later than the Rule 26 [attorneys’ meet-and-confer] conference, especially the scope, methods and estimated costs of the production,” says Cullen and Dykman Partner James Ryan.

Counsel then must advise the opposing party and the court of any potential e-discovery issues, such as data stored on backup drives not being readily accessible, so that everyone is aware of the potential costs, Ryan says.

Yelton’s advice is to “make sure your e-discovery vendor and outside counsel maintain meticulous records as to actions taken and time spent on e-discovery matters so you can support any fee/cost petition.”

“Don’t let recoverability of a particular cost be a deciding factor in determining the e-discovery plan that is best for your case,” he says. “You need to do what you need to do to win your case, while avoiding discovery sanctions.”